Dems warm up to GOP tax plan

Top Democrats are increasingly embracing a framework for taxing offshore corporate earnings that has long been favored by Republicans, as the two parties seek a deal that could provide long-term funding for the nation’s highways

Sen. Charles Schumer (D-N.Y.) is the latest Democrat to get on board, releasing a plan this week with Sen. Rob Portman (R-Ohio) that would shield offshore profits from U.S. taxation.

Earlier this year, Republicans cautiously praised President Obama for proposing a minimum tax on what companies earn abroad

The support of Schumer for a so-called “territorial” system has been somewhat obscured by the looming July 31 highway deadline, as lawmakers debate whether it would be feasible for Washington to pair a revamp of the international tax system with an infrastructure deal.
Still, the support from Democrats and Schumer — who is poised to succeed Minority Leader Harry Reid (D-Nev.) in the next Congress — has not gone unnoticed by top Republicans like House Ways and Means Chairman Paul Ryan (R-Wis.).

“The fact that you have a Democrat agreeing with sort of the Republican framework that we’ve been working on for a few years gives me a bit of hope,” Ryan said.

But as is often the case in Washington, the real challenge for policymakers will be hashing out the details.

Portman and Schumer, for instance, purposefully danced around the particulars in their plan, which was backed by liberals such as Sen. Sherrod Brown (D-Ohio).

Obama has tried to flesh out some of the details, calling for a 19 percent minimum rate on global earnings in his February budget. But business groups immediately said that rate was far too high. And on the GOP side, former House Ways and Means Chairman Dave Camp (R-Mich.) proposed a lower permanent rate for offshore income.

“The conceptual frameworks are very close, which is important,” said Eric Toder of the Urban-Brookings Tax Policy Center. “But they have a ways to go on the details.”

Schumer acknowledged as much this week. “We’re not ready to get into the detail,” he said, insisting that there were plenty of particulars available in Camp and Obama’s proposals. “It wouldn’t make any sense for us to begin discussing detail until we get the broader consensus we seek.”

Currently, the U.S. has what’s been dubbed a “worldwide” system, meaning that the federal government taxes income companies make across the globe. Corporations do get credit for taxes paid to foreign governments, and can defer paying what they owe the Treasury until they bring the earnings to the United States.

Tax analysts and officials in both parties say the current set-up collects too little revenue, distorts business decisions and has played no small part in corporations’ decision to keep some $2 trillion in global earnings offshore.

Other countries, like Japan and the United Kingdom, have shifted to a territorial system in recent years. Ryan has said that the U.S. needs to follow suit, and get away from a system that is “killing American jobs” and “eroding our tax base.”

Alan Viard of the conservative American Enterprise Institute said that lawmakers were smart to consider a system that would tax offshore profits when they happen, and to tax the earnings already offshore to help smooth the transition. Ryan, Schumer and Portman want to use the revenue from the current global profits to fund a six-year highway bill.

But Viard also said that he didn’t necessarily think that Democrats had come around to Republicans’ thinking on international taxation.

Instead, he said that the two sides were well aware that the current U.S. system was unsustainable. And because no countries employ purely territorial or purely worldwide systems, that meant the main issue was figuring out the what sort of hybrid scheme to construct.

As part of that plan, lawmakers are discussing new incentives for income stemming from intellectual property, and ways to keep companies from shifting profits to tax havens.

But there are still signs that the two parties will have to get over the bruises from years of political fights over taxes to get a deal.

Ryan has tried to stop using the term territorial system, a frequent part of the debate during the years of recent tax reform discussions, and now relies on the wonkier phrase “dividend exemption system.”

Plus, not all Democrats have gotten onboard with their leaders’ new ideas.

“I’m not there yet, but I think that that ought to be part of the discussion on tax reform,” said Rep. Richard Neal (Mass.) a senior Democrat on the Ways and Means panel.